Nanyang Business

Nanyang BusinessSchool
School

BC3405,
Strategy
Lean Projects
Operations at
& Analytics
Nanyang (SPAN)
Session 2: Process Analysis
 Process Analysis - I

• Link between Strategy and Processes

• Overview of Process Analysis Tools
• Key Process Measures and Terminologies
• Application of Little’s Law in Process Analysis
• Discussion: Raffles Health Services

2
 What is a Process?

• A process is a set of inter-related work activities that are

characterized by a set of specific inputs and value-added tasks
that produce a set of specific outputs.

• It is a series of definable, repeatable and measurable tasks

leading to a useful result for an internal or external customer

• Key elements of processes - Inputs/Outputs, Flow units,

Network of Activities and Buffers, Resources – capital and
labor, Information Structure
3
 Process View of Organizations

Information Structure

Network of Activities and Buffers

value added- activities

A
Inputs (raw Outputs
materials) waiting: queue

FT-> Time unit

FR-> Flow units/unit time
Flow Units A and B Inventory-> flow units
B

Capital and Labor

4
 Link between Strategy and
Internal Processes

• Business Strategy/Strategic Position – deliver value to

customers through a unique mix of cost, quality, time
responsiveness, variety and flexibility – external or market
measures

• Internal measures – flow time, flow rate, and inventory

• Why are these measures important?

• Can be used to improve processes
• Can be controlled by managers
• Leading Indicators of customer satisfaction and financial performance
5
 Why Process Management
• Processes determine how value is added (i.e., customers are
satisfied) and costs are incurred mcdonalds: time responsiveness, cost, quality (consistency)
All this falls under standardisation

• Managing and continuously improving processes is the key to

success of firms

• Poor performance and unnecessary costs result from:

• Outputs that do not meet customer requirements
• Activities within processes that do not directly support or add value to
outputs
• Inefficient process flows

6
 Important Aspects of Process Capability

• What is the capacity of the process? How many items

can it produce in any given time period?

• How well is the capacity of the process being utilized?

• How long does it take for an item or order to go

through the process?

These aspects of process capability directly impact the firm’s ability

to deliver on the promised external or market measures
7
 Approaches to Process
Management

Immediate – incremental, ongoing, bottoms-up

• Process Flow Diagram
• Inventory Buildup Diagram
• Process Flow Analysis
Long Term – radical, dramatic, top-down
• Business Process Reengineering
o Rethinking and radical redesign
o Reevaluating the purpose of the process and
underlying assumptions, examining objective of process

8
 Process Flow Diagram
 The use of a diagram to present the major elements of a
process

 The basic elements can include tasks or operations,

flows of materials or customers, decision points, and
storage areas or queues

 It is an ideal methodology by which to begin analyzing a

process
9
Process Flow Diagram Symbols

Examples: Giving an
Tasks or operations admission ticket to a
customer, installing a
engine in a car, etc.

Decision Points Examples: Which

wrench should be
used, which analyst
should assess the
policy etc.

10
Process Flow Diagram Symbols
(continued)

Storage areas or Examples: WIP at

queues Fabritek, lines of people
waiting for a service

Examples: Customers
Flows of moving to a seat, WIP
materials or moving to next station
customers

Flow of Examples: Inventory

information buildup and depletion 11
Example: Process Flow Diagram for Fabritek

Unpack
Mill
&
Raw (4)
Inspect
Castings

M.H.#1 Moreno

Drill Inspect
& &
Grind Pack FG

Clark M.H.#2
12
 Process Analysis

• Flowchart
• How does the process work?
• What are the steps?
• How does the material (and information) flow?
• Value Analysis
• Which steps add value? Which do not?
• Production Volume
• What is the production capacity
• What are the bottlenecks? What can we do about them?

13
 Process Analysis (contd.)

• Economics
• How much does it cost? At various volumes?
• Over the short term and the long term?
• Time Spans
• What is the setup time? Run time?
• Throughput Time
• How can one affect these?
• Uncertainties
• What can go wrong?
• What is predictable and what is not?

14
 Process Analysis (contd.)
• Skills
• What isn’t done automatically?
• What is it about the process itself – or managing the process – that
takes a long time to learn?
• Flexibility
• How does the process react to change?
• Which changes are easy? Which are not?
• Reliability
• What tolerances does the process meet?
• How repeatable are these tolerances?
• Environmental Impact
15
 Process Analysis Terminologies

• Job or Flow Units – an entity (part, piece of

information, order, material) on which various tasks
are performed
• A standard unit of the job is used for measuring various
process parameters.
• Unit can be measured in input units or output units

16
 Three Key Process Measures:
Flow Time
• Flow Time or Throughput time – the total time (on
average) spent by a flow unit within process boundaries

• Flow time varies considerably from one unit to another –

includes waiting time for processing to start

• Useful measure for a manager to promise delivery date to

customer

• Indicator of how long working capital in the form of

inventory is tied up in the process
17
 Three Key Process Measures:
Flow Rate
• Flow Rate is the number of flow units that flow
through a specific point in the process per unit time
• Flow rates may change over time e.g., number of
passengers passing through any point in an airport

Ri, 2 (t)

Ri, 1 (t) RO, (t)

Process

18
Flow rate at the exit point is called throughput rate
 Three Key Process Measures:
Inventory
• When inflow rate exceeds the outflow rate, the
number of flow units inside the process boundary
increases
• Inventory is the total number of flow units present (on
average) within process boundaries
• Inventory is expressed as I (t) as it varies over time
• Current inventory represents flow units that have
entered the process but have not exited
• Inventory represents working capital tied up in the
process
19
 Linking Process Metrics: Wine improves with age

 John is a wine buff. He likes to stop at his local wine store on the
way home from work. Occasionally he picks up a few bottles, which
he then stores in his wine cellar. He and his partner usually split a
bottle when they dine at home. When friends come over, that puts
a bigger dent in the wine inventory.
 They have been doing this for some time. His wine rack holds 240
bottles. He notices that it is seems to be about 2/3 full on average
(160 bottles). Many wines improve with age. After reading about
this, John starts to wonder how long he has been keeping his wines.
He went through some receipts and estimates that he has bought
about eight bottles per month.
 He doesn’t know when he drank which bottle, so there seems no
way to find out the average age of the bottles he has been drinking.
Little’s Law: relating Flow time,
Throughput and Inventory

• Average Inventory (I) = Throughput * Average Flow

Time No of flow units against time graph
Area: is total number of flow units
Area/time= inventory
Area=Inv x time = FT x no of people
• Pipeline Analogy Inv= FT x (no of people/time)

• Flow = 10 liters per min; Flow time = 2 min i.e.,

water takes 2 min to traverse pipe. Therefore,
pipe has 2 min worth of water flow or 20 liters of
WIP inventory
Assumption: Process is stable i.e., average inflow rate = average
outflow rate

21
 Process Flow Analysis

New work enters

the process

Work waiting
Throughput time

to be completed

Process required
to complete work

Complete work 22
 Other Process Metrics
• Batch – group of items or orders processed at one time e.g.,
garments loaded into a washer or cookies loaded into an oven for
baking

• Batch Size – number of items or orders processed as a batch (a

maximum batch size may be specified for some processes)

• Setup time – fixed time required to setup a machine for a given

batch of jobs

• Run Time – processing time taken per unit (independent of any

setup time)
23
 Other Process Metrics
• Operation time = Setup time + Run time
If setup time on a machine is 60 minutes and run time is
0.75 minute/part, the operation time for a batch of 50 parts is
(60 + 50 * 0.75) minutes = 97.5 minutes

24
 Other Process Metrics time that elapses between
successive finished units
cycle time=1/flow rate
flow rate= 600/ (80*60)
= 6/48 =0.125

• Cycle time = Average time that elapses between the1 unit should be
1/0.125=8 mins

completion of successive units completed every 8 mins

To increase the flow rate

• Takt time = Average time that elapses between successive

decrease the cycle time

units of demand
• In the spirit of ensuring that “Supply meet Demand”, we try
to create Cycle time = Takt time
Suppose 600 units must be produced in 80 hours to meet the
demand requirements of a product. What is the cycle time to
meet this demand requirement? [Recall Fabritek]
• Throughput Rate = 1/Cycle time
• Efficiency = Actual Output/Standard Output
25
 Other Process Metrics
• Capacity of resource: Maximum throughput rate in a given
length of time (units per day or units per hour)

• Workers, managers, production equipment, testing equipment have a

specified processing capacity
Flow time is not equivalent to
processing time
capacity = 1/ processing time Flow time includes waiting time
what u are capable of

• Capacity Utilization = Actual Throughput Rate how well we are using

Capacity
this capacity

maximum u can do

26
 Process Analysis Terminologies
(continued)
 Bottleneck
 Slowest operation or one that limits the capacity of

process. Occurs when the limited capacity of a process

causes work to pile up or become unevenly distributed
in the flow of a process

 If an employee works too slowly in a multi-stage

process, work will begin to pile up in front of that
employee. In this case the employee represents the
limited capacity causing the bottleneck.

27
 Illustrative Example

Buffer
Stage 1 Stage 2

Buffer is an area where work-in-process inventory can be stored

 If stage 1 produces a unit every 30 seconds and stage 2 produces a

unit every 60 seconds, what will happen to the process at the end of
one hour of operation? 60 units buildup in inventory
 If the capacity of the two stages if reversed, what will happen to the
process at the end of one hour? idle time: 30 seconds
utilisation : 50 percent

 What should be done to the process?

28
 Process Analysis Terminologies

• Blocking
• Occurs when the activities in a stage must stop because there is no
place to deposit the item just completed
• If there is no room for an employee to place a unit of work down, the
employee will be unable to continue working on the next unit
• Starving
• Occurs when the activities in a stage must stop because there is no
work
• If an employee is waiting at a workstation and no work is coming to
the employee to process, the employee will remain idle until the next
unit of work comes

29
 Raffles Health Services
Please skim through the Mini Case Raffles Health Services.
We will discuss the questions (provided at the end of the case)
in the class.

30
 Wrap Up

 Link between Strategy and Processes

 Overview of Process Analysis Tools
 Key Process Measures and Terminologies
 Application of Little’s Law in Process Analysis
 Discussion: Raffles Health Services

31